A task force appointed by Oregon Gov. Kate Brown has released a series of possible options for shrinking the state’s public pension deficit. The options include a lengthy list of ways to generate cash through a combination of one-time and ongoing changes.
The list includes some eye-catching proposals such as privatizing the state’s public universities that are unlikely to gain much traction politically.
The problem that the task force tried to tackle is this: Oregon doesn’t have enough money on hand to pay out the pensions it has promised to public employees—including those who work for state agencies, as well as those who work for local governmental bodies such as cities, counties and school districts.
The amount of the pension depends on a broad range of factors, including when the employee was hired, how long they worked in a government job, and what salary they were earning when they retired. All told, there is a $20 billion gap between what state and local governments expect to owe retirees and what is actually available to pay them. That gap is referred to as the “unfunded actuarial liability,” or UAL.
The growing UAL has forced governmental bodies in Oregon to pay an increasing amount of money into the Public Employee Retirement System, or PERS, in hopes of narrowing the gap. The increased payments mean there is less money available to provide services on a day-to-day basis. By coming up with a one-time influx of cash, the goal was to free up agencies to allow them to use their budgets on normal operating costs.
When she set up the task force in April, Brown immediately took some ideas off the table.
“We will not be privatizing prisons or selling state parks or state forests,” she said.
And the task force itself apparently screened out some possibilities.
“We … chose to exclude options we judged were not reasonable public policy, were impractical to implement, or would have had an immaterial impact on the PERS UAL within the five-year timeframe outlined in the governor’s charge,” task force members wrote in their 57-page report.
The task force was careful not to issue recommendations, but instead outlined a list of “policy options” to address the UAL. The one that appears to have the most traction is a complicated plan to pool the excess cash that several large government agencies have on hand to bolster their credit rating. The agencies keep the cash in order to prove they can respond to unforeseen emergencies.
The task force theorized that if those agencies, which include universities and the Port of Portland, put their excess “risk capital” into a joint fund, then the total amount of money needed would be significantly lower than the sum total of their separate accounts.
“If the risk capital were pooled at the state level,” the task force wrote, “less would be required since the possibility that all entities would need risk capital at the same time is remote.”
The task force estimates the maneuver could immediately free up anywhere from $750 million to $1.5 billion. The governor said she’s directing her staff to further research that idea. It’s likely the money raised from pooling risk capital would go toward seeding a newly created fund that would provide grants to local government agencies to pay down their portion of the UAL.
As envisioned, the “Employer Incentive Fund” would provide grants to cities, counties, school districts and other local governmental bodies. While those bodies are responsible for their own PERS costs, they receive ongoing state budgetary assistance. Helping them pay down their UAL would allow them to use their normal state funding to provide direct services.
The governor’s office said it’s researching the idea and could introduce it during the 2018 legislative session.
Of course, the state would also use any money raised by the task force’s ideas to pay down its own PERS UAL, which represents just over a quarter of the total unfunded pension liability in the PERS system.
In addition to the option of pooling risk capital, here are some of the other ideas included in the task force report:
- Privatizing one or all of Oregon’s public universities. Estimated revenue is $250 million - $1.5 billion. The governor has already poured cold water on this idea.
- Increase state alcohol revenues. The task force says this could be accomplished by expanding retail sales locations, implementing market-driven pricing and increasing the tax on beer and wine. Estimated revenue is “$453 million plus.”
- Lawsuit settlements. Designate proceeds from future lawsuit settlements to pay down the PERS deficit. Estimated revenue is unknown.
- Unclaimed property. The state is holding hundreds of millions of dollars in unclaimed private assets. While interest earned on those assets is dedicated to the Common School Fund, the principal is held in trust. The task force says lawmakers could change the law law to allow the state to seize control of those assets if unclaimed after ten years. Estimated revenue is at least $200 million at first, with more revenue anticipated as future unclaimed assets hit the ten-year mark.
- Sell the office building the state owns in Portland’s Lloyd District and either lease office space elsewhere or construct two smaller office buildings in a cheaper part of the Portland metro area. The task force estimates that selling the building could bring in $120 million. That would potentially be offset by moving costs and the cost of either building or leasing office space elsewhere, but the report says those costs would pay for themselves through reduced operating expenses in the future.
- Divert a portion of the money intended for the state’s reserve funds. The task force notes that at the end of the current budget cycle, the Education Stability Fund and the Rainy Day Fund could have a combined $1.2 billion. The report notes that “if the state were to divert $200 million of this biennium’s projected contributions to PERS instead, there would still be over $1 billion in stabilization funds available.”